IMF Mission to Kosovo Reaches Staff-Level Agreement on Second Review of Stand-By Arrangement

Press Release No. 12/401
October 29, 2012

An International Monetary Fund (IMF) mission, led by Mr. Johannes Wiegand, held discussions with the Kosovar authorities during October 16-29, 2012, as part of the second review of the country’s Stand-By Arrangement. At the conclusion of the visit, Mr. Wiegand made the following statement:

“The mission reached staff-level agreement with the authorities on a package of policies that aims at completing the second review under the SBA. Consideration by the IMF’s Executive Board is tentatively scheduled for December 21. The completion of this review will enable Kosovo to draw SDR 34.857 million (about €41 million). The Kosovar authorities intend to treat the arrangement as precautionary from 2013.

“Macroeconomic and financial policies are broadly on track. All end-August quantitative performance criteria were met, as a modest shortfall in revenue collection was compensated by restraint on spending. Moreover, total budget receipts (composed of revenue and financing) exceeded projections. The end-August structural benchmark on launching the tender offer for the telecommunications company PTK was also met, albeit with a slight delay. Looking ahead, the authorities and the mission agreed on the contours of the 2013 budget, and reached understandings on the parameters of a rules-based fiscal framework that would anchor fiscal policy from 2014.

“Kosovo’s economy has continued to display considerable resilience in the face of external financial turbulence. Robust current and capital inflows, notably from the Kosovar diaspora, have continued to support activity. IMF staff projects that real growth would exceed 3 percent in both 2012 and 2013, which is higher than in most neighboring countries. The banking system has remained well-capitalized and liquid, despite some increase in non-performing loans. Progress has been made in strengthening the business climate, including in the areas of streamlining business registration and investor protection.

“Nevertheless, downside risks remain, including a possible deterioration in labor market conditions in the diaspora’s host countries. In this challenging environment, disciplined fiscal management, achieving an adequate level of government bank balances, the strengthening of the legal and regulatory framework for Kosovo’s financial system, prudent financial supervision by a strong and independent central bank, and structural reforms to boost competitiveness remain critical to support macroeconomic stability and growth.”